international employment law firm alliance L&E Global
Portugal

6. Cost-Reduction Strategies

To what extent can employers implement the following cost-reduction strategies as a result of COVID, and what are the primary limitations on each? 

  • Furloughs

The question has been raised as to whether an employer can require employees to take holidays as a result of the reduced company business activity.

The specific regulations issued in the context of the current pandemic have initially given no answer to this question, so the general rules in the CT will apply.

As a rule, holidays are scheduled by agreement between the employer and employee. In the absence of an agreement, the employer may unilaterally schedule holidays, but must do so in the period between 1 May and 31 October (unless an applicable Collective Bargaining Agreement or the opinion of consulted workers' representatives permits a different period).

Regarding tourism-related activities and in the absence of an agreement, employers are required to schedule 25% of the holiday period to which employees are entitled (or a higher percentage if resulting from a Collective Bargaining Agreement) between 1 May and 31 October, which is taken consecutively.

  • Lay-off (Salary reductions).

A simplified lay-off scheme was introduced allowing for employers that are facing sharp business reduction or temporary business closure resulting from the pandemic outbreak to proceed to:

  1. reduction of the workforce normal working hours, or
  2. suspension of employment contracts and to access public financial support.

Employers may resort to the above measures when under business crisis resulting from:

  1. Full or partial business halt, resulting from a global supply chain interruption;
  2. Full or partial business halt caused by suspension or cancellation of orders or bookings (where the use of the company or premises production or occupation capacity is reduced by more than 40%);
  3. Abrupt and significant fall of at least 40% in the company turnover (in the previous 30 days prior).

The assistance takes the form of co-payment by social security of the compensation payable to the employee, calculated on the following basis:

In the event of the contract being suspended, the employee receives compensation equivalent to 2/3 of salary or, if higher, to the minimum guaranteed salary of EUR 635, up to the maximum limit of EUR 1905), 70% of which is paid by social security and 30% by the employer;

In the event of reduced working time, the employee is paid proportionally for the hours worked, and is only entitled to additional compensation to the extent required, together with this payment, to make up to 2/3 of the amount earned in consideration of the work performed (subject to a minimum of EUR 635 and a maximum  of EUR 1905). When it exists, the compensation is shared between social security and the employer at the respective ratio of 70% and 30%.

If the applicable measure is combined with a training plan supported by the IEFP, an IEFP-funded grant is added, of EUR 131.64 per employee, to be shared equally between the employee and the employer.

Employers may only benefit from assistance when their contributions and tax payments are up-to-date and in compliance with Social Security and the Tax and Customs Authority. For this purpose, and until 30 April 2020, debts created in March 2020 are not included.

  • Redundancy.

Employers that benefit from the emergency simplified lay-off assistance cannot proceed with employee redundancy measures for the duration of the lay-off and during a 60-days period following the end of the lay-off measure.

  • Facility closure.

Employers whose facilities were subject to mandatory closure due to the pandemic outbreak were allowed to resort to the emergency simplified lay-off assistance. Once the deconfinement measured determined that re-opening was allowed, employers needing to prolong lay-off assistance were required, as a pre-condition (subject to the material grounds to continue resorting to the measure, e.g. abrupt turnover fall) to effectively open within 8 days following the end of the mandatory closing measure.

Any questions

Ask our member firm Morais Leitão in Portugal